Three of N.J. biggest health systems announce alliance with Pa. hospitals as Obamacare deadlines near

The CEOs of the three New Jersey hospitals forming AllSpire. From left, Robert Garrett, Hackensack; John Lloyd, Meridian; and Joseph Trunfio, Atlantic. - (NJBIZ file)

Three of New Jersey's largest and most well-regarded health care systems — Atlantic, Hackensack and Meridian — are joining force with four Pennsylvania systems to create what they say will be the nation's largest health consortium: one with $10.5 billion in revenue and some 6 million customers.

The alliance is the latest move by health care systems to increase their scale and scope, with the ultimate aim of coordinated care that allows for higher quality and less waste. Such alliances were accelerated by the 2010 Affordable Care Act, which is driving hospitals to improve care both by cutting Medicare payments to hospitals with excessive patient readmissions, and by allowing hospitals and doctors to from accountable care organizations that share some of the money Medicare saves when health care delivery improves

In a statement, AllSpire said the seven systems and their 25 hospitals "will address quality, population health management, best practices and medical research in the Northeast region."

The New Jersey health systems will be joined by four Pennsylvania systems: Lancaster General Health, in Lancaster; Lehigh Valley Health Network, of Allentown; Reading Health System, in Reading; and York-based WellSpan Health.

"This is the first step in a new chapter that will propel us to transform health care delivery," said Karen Kessler, who chairs Atlantic and AllSpire boards, in a statement. "This consortium will produce seven cutting-edge health systems working in tandem, giving patients greater access to best-in-class health care services."

Joel Cantor, director of the Center for State Health Policy, said the alliance mirrors national trends driving consolidation — a trend that's "driven in part by provisions of the Affordable Care Act that are intended to improve care coordination and outcomes for patients."

But he also raised concerns about such alliances, saying hospital consolidation "brings risks for health care consumers."

"Larger hospital systems can wield greater negotiating leverage over reimbursement rates with health care insurers, ultimately driving up prices and costs," he said. "While it does not appear from their public announcement that Allspire has either the goal or corporate form needed to enter into price negotiations with payers, moving in that direction could happen in the future."

' A leadership role'

The alliance drew praise from Annette Catino, chief executive of QualCare, a managed health care company whose network of providers includes AllSpire's New Jersey hospitals.

She said she had conversations with alliance members during the planning stage, and said it's not the goal of the alliance to give the hospitals more leverage to negotiate higher prices from QualCare and other networks. Catino noted the AllSpire systems will remain legally independent.

"I am very excited about this," Catino said in an interview this morning. "I think these hospitals have taken a leadership role and set a new direction on what we really need to be focusing on, which is how to improve health care and attempt to create better value for the consumer. They will do this by taking the best practices from each hospital to share knowledge and improve health care in the region."

Catino said "this is not about getting bigger to negotiate prices. We are moving away from people focusing on the price of health care to an era of sharing best practices, and I am very encouraged by it."

What AllSpire is doing, she said, "is an admirable task — and it will be a lot of hard work. It is not easy to get everyone moving in the same direction."

Still, she said she expects "it will be a home run."

The new consortium will carry out joint activities in traditional areas of patient care services, research and education to enhance the value of health care that communities receive. In addition, it will address economies of scale, share best practices to improve health outcomes and identify opportunities in care delivery. It also will develop and participate in shared services in order to reduce costs.

The goal, AllSpire said, is to "leverage the combined intellectual assets of AllSpire Health Partners to elevate the quality of care, reduce the cost and move toward a regional population health focus."

Merger questions

Health care attorney Mark Manigan, of Brach Eichler, said though AllSpire is not a hospital merger, it raises the question of whether it might be a prelude to a merger of the systems, which would have to address potential federal antitrust concerns.

"The players are attempting to get to know each a little better from a corporate and clinical perspective — and that begs the question of what is the next step being contemplated," Manigan said.

Asked if a merger might face antitrust objections, Manigan said there are significant competing health care providers in the markets served by Hackensack, Atlantic and Meridian, which could defuse such problems.

"It is always a very complicated and interesting dance with the federal government to obtain these approvals, but I don't think it's out of the question," he said.

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Beth Fitzgerald

Beth Fitzgerald reports on health care, small business and higher education. She joined NJBIZ in 2008 after a 34-year career at the Star-Ledger and has been reporting on business in New Jersey since 1978. Her email is beth@njbiz.com and she is @bethfitzgerald8 on Twitter.